A crucial vote to avoid the fiscal cliff in the United States was cancelled late last night with less than a fortnight before the deadline for budget reform.

Markets around the world reacted nervously to the news with Tokyo’s Nikkei Average dropping 1% and European stock exchanges falling by as much as 0.5%.

The FTSE 100 fell 59.91 points to 5898.43 while gilts rose as many investors headed for safe havens.

Republican leader of the House of Representatives John Boehner called off a symbolic vote which would have increased taxes on people earning over $1 million (£615,000) a year after right-wingers in the party made it clear that they were not prepared to support him.

If no compromise can be reached in the next 10 days, the fiscal cliff of $600 billion of automatic tax hikes and spending cuts will come in on January 1.

The House bill, which was meant to counter President Obama’s revised proposal for tax rises on households earning more than $400,000, was supposed to force the Democrats to make greater concessions as talks between the two sides enter the final furlong.

“The House did not take up the tax measure today because it did not have sufficient support from our members to pass,” Boehner said.

As a result, what was meant to be a moment of partisan triumph for Boehner, as House Republicans went on the record in support of his plan, swiftly turned into embarrassment, as he was forced to pull a vote on his proposals.

Analysts said that this would strengthen President Obama’s hand in any last-minute negotiations.

The symbolic measures would not have found any favour in the Democratic Senate and had been criticised by Obama, who could have used his veto in the unlikely event that it made it to his desk.

The cancellation leaves Boehner in a tight spot by exposing fault lines on the Republican side as he negotiates with the Democrats.

Boehner, a Republican from Ohio, said: “Now it is up to the president to work with Senator [Harry] Reid [the Democratic leader in the Senate] on legislation to avert the fiscal cliff.”

The White House said it was “hopeful that we will be able to find a bipartisan solution quickly”. However, a deal is now unlikely before Christmas with the House in recess until December 27.